Tuesday, January 31, 2012

The Future of Travel Membership Sites in the Wake of Groupon

For the last few months I, along with every other consumer out there (except of course the big wig Wall Street MBA's or shall we call them mystics) have been wondering how in the world Groupon is worth billions of dollars. The truth is that it does not matter. The powers that be say they are worth a gazillion dollars and so they are. And there is where the fun begins.

Despite the fact that we all know that Groupon' model is like a speed of light derailed train, we all want in. Better yet, we want our own speed of light derailed trains on the track. And so the travel industry has taken note and is building a train of their own offering Groupon like deals on member only websites such as Gilt.com, Ruelala.com and Haunte look. This could not have happened at a better time. If the trend is correct then consumers who purchase luxury goods, still worried about the economy and itching to travel want to find the best deal possible. Maybe it is psychological-obviously the kind of person who purchases luxury items even at a discount is not that worried about the economy.

Perhaps it is just that great feeling we get when we think we got a great bargain. Whatever the reason more and more people are signing up to these member only bargain websites and more often than not the site will also offer travel deals in the mix. The question is are these travel deals selling? Or are these travel deals just window dressing to create the look and feel of the lifestyle that the consumers who sign up for these sites, are or would like to think they are a part of? More precisely are these member only luxury good sites the best vehicle to use in order to get on the Groupon trillion dollar track? Maybe.

The Groupon model is simple: local merchants go to the Groupon website and request to be featured as a deal in their local market. Groupon has a rep contact the merchant to workout the details of the deal, such as retail cost discount etc. At the end of the day when the merchant is featured, and enough people buy the deal for it to be "on" Groupon gets 50% of the revenue generated, the merchant gets a check for the other 50%,and the consumer gets a great bargain. Everybody wins right? Not so fast. The merchant now has to honor the Groupon deal which means they better have done their homework! Remember, Groupon keeps 50% of the already discounted revenue. So now the merchant is left with a consumer who is receiving goods or services for a fraction of the cost. That consumer better come back and pay full price a few times or purchase something else at full cost when they use that Groupon. Otherwise more often than not everyone wins except the merchant. If that is the model that everyone is rushing to emulate then take caution: merchants will not run deals again if all they are doing is losing money.

So what does all of this have to do with luxury goods membership sites and travel. As a humble observer and one who is very familiar with the margins that we all live and die by in the travel industry, let us all pay attention to those margins as we hop on these luxury goods member only sites. Yes, they have millions of free subscribers that buy expense stuff at a discount. Yes those subscribers may or may not be interested in travel. But those subscribers are more expensive to woe, even more expensive to retain and require more attention than your average Joe on Expedia.

The bottom line is that all this window dressing from product, to copy and retention both pre and post sale will have an effect on the bottom line and should be carefully considered before getting to the train station never mind hoping on the train. There are those who are banking on just creating value by distinction such as Jetsetter.com, the idea being that that will be enough to separate themselves from the commoditized OTA world. I humbly disagree.

The truth is that no matter what travel deal I am offered on an exclusive member site as a consumer I am going to check the validity of the claimed discount by going on the hotel site and then an OTA. Unless I am receiving some other quantifiable value I will still book with the cheaper of the three. Sound like just another commodity with lots of bows? You bet it is! That is unless these member only sites find a way to offer some perceived value to the travel consumer that will raise their conversion. I guess we will wait and see.